Everything You Need to Know About Holiday Lets
Could holiday lets secure you a bigger return than a traditional rental?
The past few years have been a voyage of discovery for many of us. With finances taking a hammering and every new month bringing untold joys, it is no surprise really that many landlords (as many as one in ten if reports are to be believed) are considering throwing in the towel and exiting the market.
However, before you swap your letting agent for an estate agent, is it worth considering a different kind of towel altogether – a beach towel, for example? Many landlords are looking to holiday lets instead of long-term accommodation as an alternative option, but is this a viable option?
We caught up with Adrian McClinton, a property litigation solicitor and head of dispute resolution, to chat about whether he thinks Air B’n’B style solutions provide landlords with a safe option, as an alternative to residential lets.
Is it all sunshine and sandcastles?
‘Well, I’m going to do the lawyer thing and say that I think it really is a case of horses for courses, and a lot will depend on whether the property lends itself to holiday lets, and whether it will be lucrative or not.’
There are there are so many things that are a property owner needs to think about if they’re going to switch from letting a property in the traditional way. On an Assured Shorthold Tenancy (AST), the property is likely to be someone’s principal home. It’s a big jump to deciding to use it as a holiday let, there’s lots to consider.
In a nut-shell, are holiday lets easier?
It’s important to remember that whilst a holiday let may be filled with sunshine (haha!) and Mr Whippy, it is still a legislation-led business, just like any other. You can’t just throw caution to the wind, forget your landlord responsibilities and stick your property up on Air B’n’B, congratulating yourself on negotiating a simpler life.
There’s still lots of lettings legislation tightropes with balance on, as well as delivering a level of customer service – now you’re a lettings professional and a hospitality superstar, congratulations, another hat to add to your collection!
Is there much crossover between long-term residential letting and holiday lets, or do landlords have to go completely back to the drawing board – and is there anywhere where you can shave off some of the rules?
‘Funnily enough, the individuals that are tasked with drafting our legislation, they’re quite clever. And they are very skilled at ensuring that the legislation that applies is designed and drafted to take into account that sort of conduct,’ explained Adrian.
‘If you’re going to use the property as a holiday let instead your instead of your bog standard buy-to-let, there are a number of things that you need to consider that you don’t normally have to consider when using a property as a residential let.’
‘So for instance, the right to rent regulations. They state clearly that they apply to people that are using the property as their principal home. Now, there is interpretation of what your principal home is. So people that use their properties as a whole, they might think that they can avoid the right to rent regulations. But of course, if a property is used for a certain period of time, there’s a question mark as to whether that individual that’s occupying the property is using it as their only principal home. So therefore, the right to rent, immigration rules apply to that occupation.’
There’s many ways in which the government has thought about the drafting of legislation that will capture individuals that think that just because they label the occupation as a holiday let, they can get around the regulations that apply to a normal buy-to-let.
One of the main concerns of course, will be the loss of guaranteed income. With an AST, a landlord can be relatively confident of a regular rental income, with a holiday let, there’s no guarantees at all.
UK holidays shot through the roof over the pandemic, but as the world reopens, holiday makers are once again travelling further afield for their jollies. Is the holiday market really a financially viable option for someone with a mortgage to pay?
‘That’s absolutely correct. There’s a very real commercial consideration’ agreed Adrian. ‘If you look at it from the legal perspective, there’s a number of things that you need to consider. First of all, if you’ve got any borrowing on the property, is what you’re planning to do a breach of the mortgage conditions? Secondly, you have insurance, will what you’re planning to do – moving from an Assured Shorthold Tenancy to using the property as a holiday let – be a breach of any insurance terms and conditions, which will invalidate your insurance?’
‘Further, there is also the consideration that you might have in terms of the use of the property, if you plan to materially change the use of the property, will this present planning considerations as well?’
Lenders and insurance providers may not be the first people that spring to mind when considering a move to holiday lets, but they have a very real interest in who is in your property, and what they may be up to. Is it important to inform them, and is there anything they can do to put the brakes on your plan?
‘It will depend entirely on what the mortgage terms and conditions stated. But most buy-to-let mortgages will stipulate clearly the type of letting that you’re permitted to do, and how you can use the property. More often than not, there’ll be a clause in there that states that the borrower is to use the property as a buy-to-let through an Assured Shorthold Tenancy’, explained Adrian.
It’s not just your mortgage to consider, your insurance company has skin in this game too – the two are closely linked.
‘If you have to claim on your insurance, for instance, the mortgage company may discover the use of property. If there’s a complaint to the local authority regarding noise nuisance, (which believe me, definitely can happen with holiday let’s) your mortgage company could be informed. It is quite clear from the land registry records if a property is subject to a mortgage – the local authority could obtain a copy of the land registry records and could contact the mortgage company regarding the use of the premises. So ultimately, there’s a strong chance you will get found out if you try and chance your arm on this one.’
Keeping on side with the neighbours
Neighbours. Everybody needs good neighbours. However, you may just become the least popular person on the street if you suddenly turn your residential property into a mini-Hilton.
Depending on the location of the property, and the type of neighbourhood, there is an awful lot to consider with regards to keeping neighbours on side, so is there any way to navigate this tricky business, if you choose to go down the holiday let road?
‘This can be a real issue, because if you’ve got a place that you had one tenant in renting for the whole year, and then all of a sudden you’ve got all sorts of people coming and going, and you haven’t got much control over how they use the property when they’re actually in it, then that can cause lots of problems for the neighbours as well as for you as a landlord,’ said Adrian.
‘I’d put neighbours in a number of distinct categories. Residential neighbours of course can suffer the hands of living next to a buy-to-let that’s then used as a holiday let, with the associated comings and goings, late night parties etc. But also, there’s the potential that if you’re using the property as a holiday let you’re actually competing with local hotels, and accommodation as well. Local residents may well have something to say about the fact that they’re competing with someone that perhaps isn’t complying with the same regulations that they have to comply with, when they’re operating their business.’
When CAN holiday lets work?
Well, so far, so negative! But surely Adrian, surely there must be something in it? We’re all lusted after idyllic holiday cottages on the coast. These landlords aren’t doing it purely for the love of the Great British Seaside Holiday alone – nobody loves fish and chips THAT much!
‘If the property is located in an area with high demand in terms of tourism, then it can be a lucrative use of the asset. But the idea that it’s hassle free, is it’s just very misleading.’
‘Even in areas with the highest demand of tourism, you will have void periods. And you need to take those into consideration when considering whether it’s commercially more attractive.’
‘It could cause problems in terms of meeting your obligations, financial obligations under a mortgage. Also, there are a lot of hidden costs within holiday let’s that initially, when you’re looking at the spreadsheet, don’t jump out at you. Fact is you are competing with hotels, and B&Bs is based on the local area, and people staying and using holiday, let’s expect a level of service comparable to those hotels and B&Bs.
In short, the old adage of, if it sounds too good to be true it usually is, is well worth remembering here.
In the meantime, why not head over to the Mashroom Landlord Community on Facebook and join the holiday let debate. We’re all chatting about how it’s going to look for us, and we’d love to hear your thoughts!